A time capsule of the greatest financial mania in the history of mankind, told in real-time by regular folks and patriots. May future generations better understand the madness of crowds, and how power and money corrupt.

November 22, 2005

I'm starting to think the only speculators left in the market are those who weren't lucky enough to unload this summer... but the question in on those hundreds of thousands of units currently under construction (Phoenix, Vegas, Miami for starters) - speculators put $5000 or so down to hold 'em, but what happens in 2006 when they walk away from their deposits - and the builders have no buyers?

Timber.

Lisa Tershak is offering to pay $5,500 in cash to anyone who buys her three-bedroom house in Leesburg, Virginia, near Washington.

She's reduced the investment property's asking price five times since July to $464,900, not far from the $450,000 she paid for it in March. ``There's too much inventory,'' says Tershak, 35. ``Everyone felt the bust coming and decided to dump their properties at the same time.''

Investors who helped fuel the U.S. housing boom by bidding up prices are now so desperate for buyers that some are offering cash bonuses in such markets as Washington. That's a sign the Federal Reserve is succeeding in removing some of what Chairman Alan Greenspan called ``froth'' from the market. Inventories of unsold single-family homes are near a 17-year high as demand from speculators wanes and mortgage rates have risen more than a percentage point from a four-decade low reached in 2003.

38 comments:

Jim Cramer painted a rosy picture for stocks on his "RealMoney" radio show Monday.

Cramer said there are a number of factors regarding why the stock market is poised to rally, such as a strong dollar, declining oil prices, a tech gadget rally, mutual funds that are getting new money in, hedge funds that are too negative and a stock market that is "not that expensive."

The biggest reason, though, is the relative decline in the appeal of real estate as an investment vs. stocks. Real estate may have outperformed stocks for a number of years, but the tide is turning, said Cramer, and investors are coming back to the market in droves.

Interesting commentary in Mr. Lessinger's book. He does not put emphases on interest rates as a major cause of a Bubble Burst. See Below:

"Today's suburbia is now 60 years old. Due to slowing growth, super-high prices cannot be sustained,” warns Jack Lessinger, Professor Emeritus of Urban Development, University of Washington.In his latest book, "Your County—Boom or Bust?

California led the way to suburbia. Today, over half its population of 35 million live in counties that became inundated with suburban subdivisions during 1950-1970. But the tide has turned. In 1990-2004, the great majority of these counties—including such heavyweights as Los Angeles, San Diego and Santa Clara—are faced with declining percentage shares of national population. See Appendix, pp 200-201. Decline has also hit other suburban areas throughout the nation. For other states see the rest of the Appendix.Suburbia won’t disappear but growth is moving elsewhere. Since 1970, in a barely-noticed migration, people have been pouring into 318 smaller non-suburban counties. It’s only the beginning. More and more families are packed and ready to go. As random choice becomes national conviction and the trickle becomes a flood, suburbia’s percentage share of the national population will increasingly decline."

A Professor of Urban Development predicts the end of suburbia? Alert the media. Oh wait, he did. Lessinger doesn't even know his subject. He makes that abundantly clear by calling the by far the densest large county in the US, Los Angeles, suburban. The flight to the "318 non-suburban" counties is what's been going on for the last 60 years but according to herr Professor this time its' different. As anyone should know whenever someone with a vested interest in the conclusion says this time is different, hold on to your wallet and step away!

I am grateful for rent control in Los Angeles. I do get zapped with 5% increase each year. My income does not allow me to buy that $1,200,000 dollar home in the Hancock Park neighborhood I live in. The Wilshire Country Club golf course is across the street. You can see the Hollywood sign from my apartment.

In the law the concept is what a "reasonable man" would do.

The "reasonable man" has jumped out the window in this rush to buy homes at these outrageous prices.

WOONSOCKET - A shortage of affordable housing in Rhode Island has reached the point of crisis, and will have far-reaching effects on the state's economic outlook, according to research released last week by a broad-based coalition called HousingWorksRI.

In Woonsocket, the fourth-cheapest place to live in the state, after Providence, Central Falls, and Pawtucket, the median home price is now $218,000. The required income to make that purchase affordable is $70,000 a year.

In Cumberland, North Smithfield, Lincoln and Glocester, where median home prices approach or exceed $300,000, household income to afford to buy a home must be in excess of $90,000 a year, which is beyond the reach of most households even with two full-time wage earners. Average wages for positions like clerical, retail, and manufacturing workers are in a range of $22,000 to $28,000 a year.

my townhouse condo in Vernon CT- Bought in 1992 for 90K brand new then,End unit, two level, attached garage, skylights, vaulted ceilings 2 brs 1.5 baths, hardwood floors on the first level, tile floors bathroom second level, double seated shower, glass doors ($4500) in 2004, garden in rear next to patio. 1100 sq feet. Small complex (24 units) self managed, nice grounds. Condo fee 120.00 a month. Located 17 miles NE of Hartford. 78 miles from Boston, 52 miles from Providence, 37 miles from the ocean. 135 mi from NYC- Take a guess what the last one sold here for (closed last Friday)..

41400K in a nice section of the L.A area yes- the end unit that closed here last Friday sold for 170K- now I know why I see so many California plates locally! Mild weather into late November here- this newcomers will have to suck up their first winter in 'mild southern New England' LOL

some stuff is still closing- from the remains of the late summer and early autumn.

FYI in eastern Connecticut, in a wooded rural smaller town this is what you can buy; In Marlbourough CT- nice community SE of Hartford, near the freeway New construction colonial, on 2 plus acres, basement Marvin windows, FP, crown moldings HW floors 3 brs 2.5 baths 2700 sq feet- 399K

41 you seem like a very interesting person- your goals sound wonderful, and your business sounds fascinating as well. Eastern CT is attracting many artists and X New Yorkers, Washingtonians and a few Bostonians and Californians as well. Why? Housing is a real bargain. You can buy a nice house not far from the shore for 300K, and housing in general is 'cheap' for the location. Rolling hills, small farms, lots of history, and wineries.Lets hope not too many move here.

From the L.A timeshttp://www.latimes.com/travel/destinations/easternstates/la-tr-newengland9oct09,1,1982561.story?coll=la-travel-easternstates

I truly am looking at this Bubble in Real Estate to Crash and Burn in Los Angeles.

Then there is the OIL stocks.

I have bought and sold 8 homes since 1960. I have been buying and selling stocks since 1960.

Eventually one gets a gut level feeling about what one undertakes with gusto and understands.

I especially like Buffett quotation. "All we want is to be in business that we understand, run by people whom we like and priced attractively relative to their future prospects."

I look at the two events crossing.

1. Real Estate Crash and Burn.

2. Oil and Gas Companies stock going to the stars.

One thing for sure about most but of course not all Southern California people. They absolutely do not like any cold weather. It is a strange occurrence but I don't see many Southern California people going to your beautiful eastern Connecticut. (Gut level Feeling).

At this point I feel I did the right thing a few months ago of allocating some money into large cap growth mutual funds- they are dong well. I still have most of my money in cash and bonds. I still feel the FED will not stop raising rates. Till mid 2006.

I agree with you that real estate is too high in most of California, In my neck of the woods the median yearly median income is about the same as it is the L.A area- but over 60% of the people here would qualify for a conventional mortage.

I agree that most Californians hate cold- but I do see locally many California plates- at least one everyday.The could be returnees or escapees. I have met on line locally men and women who have relocated here from both the bay area and L.A- when I asked them about the cold- they say 'they like snow'. Well I do not like cold either- I am an easterner by birth. Met two on a local chat room. I also have met returnees from Florida now back here after many years. Florida I truly hate. I love Californi'a climate, been there a dozen times over the years- the coast is the best. However I would severely compromise my high quality of life here, in moving to a state -that might have great weather, but I would be unable to not live in a decent area, despite the fact that I would have a good income. The weather is nice- but peace of mind, low crime, proximity to great urban centers, affordable housing, are not bad attributes. Weather/climate does not pay the bills,especially when they are so large.

I have seen Californians relocating to Vermont and Maine and western Mass (much cheaper then Boston).

good postings... I really think we're looking at a short term stock market ride as investors GET OUT of anything real estate that they've been focused on for 4 years and go straight into stocks. thus this month's rise.

As to oil, the easy money has been made - and now we're looking at 10% to 20% stock price growth for at least 5 to 8 years.

I'm an insider - ConocoPhillips. I got out over a year ago when I started my own company, but still hold my COP options, for 7 more years. Up over 150% so far and not cashing in. The world will continue to demand more oil than we can produce - thanks to India nad China.

The danger sign I watch for though is the implosion of the US and/or world economy as the real estate bubble melts down and consumer spending dries up. So I'm cautious with 40% of my assets in 4% savings, 20% in COP, and 40% in stocks and mutuals.

And ZERO IN HOUSING!

Good luck out there. Get out of the market at the first ugly sign, but I think we're on a ride through Q1

I certainly understand why California people leave. For myself I rarely get on the freeways. Found my nitch. I drive less than 15 miles a week. Unless something special comes up which causes me to get onto a freeway.

Of course that Google sure is interesting. I did not have the funds to get into Google. Probably would not have anyway. My portfolio is small but it is in Oil. I even received a letter from the manager of the Stock Firm I trade with saying he was concerned about my concentration into one area of investing.

I have taken a very risky situation in Oil and Gas. So much is dependent on oil. Roads, plastics, tires, fertilizer, teenagers alone all over the world want to drive a car. So there I am.

I had money in mutual funds that where natural resources (oil, etc) and utilities, and got a nice ride most of the year, however a few weeks before the sell off in both sectors I sold them and switched to other sectors- not bad timing. I still feel however that oil is far from dead- and think in the spring gas prices will rise again. Housing is way overpriced, and even if the FED raises rates 2 more times- its over for housing. Inventory is rising here in Connecticut- and even desired higher quality condos are sitting much longer on the market. I see now Bernanke admits 'there might be a problem with housing'...well HELLO BEN! This guy should have been a realtor- I think he is worse then Alan 'Bubbles' Greenspan. I am keeping my large cap mutualfunds(overweight in tech) into the first quarter, then dumping them- I think the housing market will weaken further, scaring the consumer, and sending the economy into a recession late next year or early 2007. And even if Bernanke drops rates, the damage has been done, and he will be pushing on a string.

Being an insider to conoco as you had stated, I wonder what your thoughts are about "peak oil" ?? I know that this is abit off topic, but the rising price of energy is obviously a factor in RE as well as the general economy..

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